'Magnificent 7' Widens Gap With Rest Of S&P 500, But That May Change In 2024

The gap between the “Magnificent 7” tech giants listed on NASDAQ and the rest of the S&P 500 is widening.

The collective performance of Alphabet Inc GOOG GOOGL, Amazon.com Inc AMZN, Apple Inc AAPL, Meta Platforms Inc META, Microsoft Corp MSFT, Nvidia Inc NVDA, and Tesla Inc TSLA has surpassed the gains of the other 493 stocks in the broad market index by more than threefold.

The “Magnificent 7,” also known as Mag7, stocks comprise nearly a third of the S&P 500 by market weighting, and without them the index wouldn’t have delivered nearly as strong a return in 2023 — up 24% over the year.

The SPDR S&P 500 SPY, an exchange traded fund that tracks the index, is also up 24%.

However, isolating the Mag7 from the index reveals a remarkable insight into the powerful influence of these stocks.

The Mag7 is up 75% over the year, while the S&P 493 — the senior index minus the Mag7 — is up just 12%. A difference of 63 percentage points.

Indeed, the 24% return on the S&P 500 this year more than doubles the return on the S&P 493, according to the Kobeissi Letter, posted on X.

“In other words, the Magnificent 7 is up three times as much as the S&P 500 and around six times as much as the S&P 493,” the author of the Letter said.

Despite a strong surge recently in small-cap stocks, appetite for the large- and mega-caps remains high. Data on Friday showed that the SPDR S&P 500 enjoyed its biggest single-day cash inflow on record – raking in $20.8 billion.

Also Read: Small Caps Are ‘Outperforming Everything,’ Analyst Says: This Rally’s Been ‘Years In The Making’

But can they continue this performance?

On Tuesday, Benzinga interviewed Piper Sandler’s chief market technician Craig Johnson, who forecast a sizeable rally for small-cap stocks in 2024, while expecting the large- and mega-caps to get stuck in a “high-level trading range.”

He added: “We’re probably going to end up in a period of consolidation, and we'll be in this high-level trading range for much of 2024 — an equity stall near the 2022 highs, where your Mag7s become your Lag7s.”

In its monthly Global Fund Manager survey, Bank of America noted that 49% of respondents said that long positions on the Mag7 was the most crowded trade.

This has pushed valuations up to historic highs, with the Mag7 trading at an average price-to-earnings ratio of 50x — more than double that of the S&P 500 average.

But investors polled by BofA didn’t appear to be overly concerned — in fact, the survey indicated most fund managers were extending their overweight positions in equities in December.

As the Federal Reserve begins to contemplate interest rate cuts, the consumer technology space begins to look more attractive, while companies are likely to resume capital spending on digital transformation, embracing cloud technologies and other digital innovations.

Here how the Mag7 stocks have performed over the year:

• Nvidia is up an astonishing 239% this year
• Meta Platforms, the Facebook parent, is up 191%
• Elon Musk’s EV giant Tesla has risen 109% in 2023
• Amazon has gained 83%
• Google parent Alphabet has risen 56%
• Microsoft is up 57%
• Apple has risen 52%

Now Read: Goldilocks 2024: Investors Increasingly Optimistic On Profits Outlook For Next Year

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